Basic Concepts and Order Types
Before you start trading, you need to understand the fundamental concepts and the different ways you can execute trades. This lesson covers essential trading terminology and the various order types you'll use every day.
Understanding Trading Pairs
In cryptocurrency trading, you always trade one asset against another. This is called a trading pair. The pair is written as two symbols separated by a slash or hyphen.
BTC = Base currency (what you're buying or selling)
USDT = Quote currency (what you're paying with or receiving)
If BTC/USDT = $50,000, it means 1 Bitcoin costs 50,000 USDT.
Common Quote Currencies
- USDT/USDC: Stablecoins pegged to USD - most common
- BTC: Bitcoin pairs - for trading altcoins against Bitcoin
- ETH: Ethereum pairs - common for DeFi tokens
- BUSD/DAI: Alternative stablecoins
Bid, Ask, and Spread
Every market has two prices that you need to understand:
The spread is the difference between the bid and ask price. A smaller spread indicates a more liquid market with easier trading. High-volume pairs like BTC/USDT typically have very small spreads.
| Metric | Example | Meaning |
|---|---|---|
| Bid | $49,995 | Best price to sell now |
| Ask | $50,005 | Best price to buy now |
| Spread | $10 (0.02%) | Cost of immediate execution |
Types of Trading Orders
Understanding order types is crucial for executing your trading strategy effectively. Here are the main types you'll use:
1. Market Order
A market order executes immediately at the best available price. Use this when you want to enter or exit a position right now, regardless of the exact price.
- Pros: Guaranteed execution, instant
- Cons: You might get a worse price than expected (slippage)
- Best for: Urgent trades, highly liquid markets
2. Limit Order
A limit order only executes at your specified price or better. You set the exact price you're willing to pay (for buying) or receive (for selling).
- Pros: Control over entry/exit price, no slippage
- Cons: May not execute if price doesn't reach your level
- Best for: Planning entries at specific levels
BTC is currently at $50,000. You believe it will drop to $48,000 before rising. You place a Buy Limit at $48,000. Your order sits in the order book and only executes if the price drops to $48,000 or lower.
3. Stop-Loss Order
A stop-loss order automatically sells your position when the price falls to a certain level. This protects you from larger losses.
- Pros: Limits downside risk, removes emotion
- Cons: Can trigger during temporary price spikes (wicks)
- Best for: Risk management, protecting profits
4. Take-Profit Order
A take-profit order automatically sells when your target price is reached, locking in your gains.
- Pros: Secures profits automatically
- Cons: Might miss additional gains if price continues rising
- Best for: Disciplined profit-taking
5. Stop-Limit Order
Combines stop and limit orders. When the stop price is reached, a limit order is placed instead of a market order.
6. OCO Order (One Cancels Other)
Places two orders simultaneously: a take-profit and a stop-loss. When one executes, the other is automatically cancelled.
Order Book Basics
The order book shows all pending buy and sell orders for a trading pair. Understanding it helps you gauge market sentiment and find good entry points.
| Buy Orders (Bids) | Sell Orders (Asks) | ||
|---|---|---|---|
| Price | Amount (BTC) | Price | Amount (BTC) |
| $49,990 | 2.5 | $50,010 | 1.8 |
| $49,980 | 5.2 | $50,020 | 3.1 |
| $49,970 | 8.7 | $50,030 | 4.5 |
Large orders in the book (called "walls") can act as support or resistance levels. However, be aware that large orders can be pulled or "spoofed" to manipulate traders.
Long vs Short Positions
There are two ways to profit from price movements:
Short selling involves borrowing and margin, which amplifies both gains AND losses. When going long, you can only lose what you invested. When shorting, losses can theoretically be unlimited. Only short when you fully understand the risks.
Leverage and Margin Trading
Leverage allows you to control a larger position with less capital. It's expressed as a ratio like 2x, 5x, 10x, or even 100x.
You have $1,000 and use 10x leverage.
You can now control a $10,000 position.
If BTC rises 5%: You make $500 (50% return on your $1,000)
If BTC falls 5%: You lose $500 (50% of your capital)
If BTC falls 10%: You lose $1,000 (100% - liquidated!)
Key Margin Terms
High leverage is extremely risky. Most beginners who use high leverage lose their entire investment. Start with NO leverage or very low leverage (2-3x max) until you have significant experience.
Understanding Trading Fees
Every trade you make involves fees. Understanding them helps you calculate true profit/loss and choose the right exchange.
| Fee Type | Description | Typical Range |
|---|---|---|
| Maker Fee | Paid when your limit order adds liquidity to the book | 0.00% - 0.10% |
| Taker Fee | Paid when your order removes liquidity (market orders) | 0.04% - 0.20% |
| Funding Fee | Periodic fee for holding futures positions | -0.03% to +0.03% every 8h |
| Withdrawal Fee | Fixed fee for withdrawing crypto from exchange | Varies by coin |
π§ Test Your Knowledge
1. In the pair ETH/USDT, which is the base currency?
2. Which order type guarantees execution but not price?
3. With $100 and 10x leverage, how much can you control?
π Lesson Summary
- Trading pairs show one currency priced against another (e.g., BTC/USDT)
- The bid is the best price to sell; the ask is the best price to buy; the spread is the difference
- Market orders execute immediately; limit orders only at your price or better
- Stop-loss orders protect against losses; take-profit orders secure gains
- Going long profits from rising prices; going short profits from falling prices
- Leverage amplifies both gains AND losses - use with extreme caution
- Always factor in trading fees when calculating profit/loss